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Why Governments Will Not Ban Bitcoin

October 23, 2017

Those who see governments banning ownership of bitcoin are ignoring the political power and influence of those who are snapping up most of the bitcoin.

To really understand an asset, we have to examine not just the asset itself but who owns it, and who can afford to own it. These attributes will illuminate the political and financial power wielded by the owners of the asset class.

And once we know what sort of political/financial power is in the hands of those owning the asset class, we can predict the limits of political restrictions that can be imposed on that ownership.

As an example, consider home ownership, i.e. ownership of a principal residence. Home ownership topped out in 2004, when over 69% of all households "owned" a residence. (Owned is in quotes because many of these households had no actual equity in the house once the housing bubble popped.)

The rate of home ownership has declined to 63%, which is still roughly two-thirds of all households. Clearly, homeowners constitute a powerful political force. Any politico seeking to impose restrictions or additional taxes on homeowners has to be careful not to rouse this super-majority into political action.

But raw numbers of owners of an asset class are only one measure of political power. Since ours is a pay-to-play form of representational democracy in which wealth buys political influence via campaign contributions, philanthro-capitalism, revolving doors between political office and lucrative corporate positions, etc., wealth casts the votes that count.

I am always amused when essayists claim "the government" will do whatever benefits the government most. While this is broadly true, this ignores the reality that wealthy individuals and corporations own the processes of governance.

More accurately, we can say that government will do whatever benefits those who control the levers of power most, which is quite different than claiming that the government acts solely to further its own interests. More specifically, it furthers what those at the top of the wealth-power pyramid have set as the government's interests.

Which brings us to the interesting question, will governments ban bitcoin as a threat to their power? A great many observers claim that yes, governments will ban bitcoin because it represents a threat to their control of the fiat currencies they issue.

But since government will do whatever most benefits those who control the levers of power, the question becomes, does bitcoin benefit those holding the levers of power? If the answer is yes, then we can predict government will not ban bitcoin (and other cryptocurrencies) because those with the final say will nix any proposal to ban bitcoin.

We can also predict that any restrictions that are imposed will likely be aimed at collecting capital gains taxes on gains made in cryptocurrencies rather than banning ownership.

Since the wealthy already pay the lion's share of federal income taxes (payroll taxes are of course paid by employees and employers), their over-riding interests are wealth preservation and capital appreciation, with lowering their tax burdens playing third fiddle in the grand scheme of maintaining their wealth and power.

Indeed, paying taxes inoculates them to some degree from social disorder and political revolt.

I was struck by this quote from the recent Zero Hedge article A Look Inside The Secret Swiss Bunker Where The Ultra Rich Hide Their Bitcoins:

Xapo was founded by Argentinian entrepreneur and current CEO Wences Casares, whom Quartz describes as "patient zero" of bitcoin among Silicon Valley’s elite. Cesares reportedly gave Bill Gates and Reed Hoffman their first bitcoins.

Their first bitcoins. That suggests the billionaires have added to their initial gifts of BTC.

The appeal to the wealthy is obvious: any investment denominated in fiat currencies can be devalued overnight by devaluations of the currency via diktat or currency crisis. Bitcoin has the advantage of being decentralized and independent of centrally-issued currencies.

I submit that not only are the wealthy the likeliest buyers of bitcoin for this reason, they are the only group that can afford to buy a bunch of bitcoin as a hedge or speculative investment. Lance Roberts of Real Investment Advice recently produced some charts based on the Federal Reserve's 2016 Survey of Consumer Finances (SCF) report-- Fed Admits The Failure Of Prosperity For The Bottom 90%.

Put another way: how many families can afford to buy a bunch of bitcoin?

Here is a chart of median value of family financial assets: note that this is far below the 2000 peak and the housing bubble of 2006-07:

Here is mean family financial assets broken out by income category: note that virtually all the gains have accrued to the top 10%, whose net worth soared from $1.5 million in 2009 to over $2.2 million in 2016, a gain of $700,000.

The Fed's 2016 Survey of Consumer Finances is a treasure trove of insights into wealth and income inequality in the U.S. Here are the highlights: Changes in U.S. Family Finances from 2013 to 2016.

As you'd expect, the report starts off on a rosy note: GDP rose by 2.2% a year, unemployment declined to 5%, and the median family income rose 10% between 2013 and 2016.

Blah blah blah. Meanwhile, on page 10, it's revealed that the top 1% receives 24% of all income, and the families between 90% and 99% receive 26.5%, for a total of 50.5% of all income flowing to the top 10%.

The top 1% owns 38.6% of all wealth, and the families between 90% and 99% own 38.5%, so the top 10% owns 77% of total wealth.

On page 13, we find that the total median net worth of all families between 40% and 60% went from $57,000 to $88,000, a gain of $21,000, while the median net worth of families in the 60% to 80% bracket rose from $166,000 to $170,000, a grand total of $4,000.

Meanwhile, back in La-La Land, the median net worth of the top 10% soared by $468,000, from $1.16 million to $1.62 million.

Which family has the wherewithal to buy a bunch of bitcoin at $5,900 each as a hedge or investment, the one that gained $4,000 in net worth, the one that gained $21,000 in net worth or the one that gained $468,000?

You see the point: the likely buyers of enough bitcoin to count are the politically powerful financial elite. If any politico was foolish enough to propose banning bitcoin, a few friendly phone calls from major financial backers would be made to impress upon the politico the importance of blockchain technology and cryptocurrencies to the U.S. economy.

Heck, the financial backer might just suggest that all future campaign contributions to the politico will be made in bitcoin to drive the point home.

My vision of cryptocurrency, laid out in my book A Radically Beneficial World: Automation, Technology & Creating Jobs for All, is of a truly decentralized currency that directly funds work that addresses scarcities in localized community economies. The reality of existing cryptocurrencies is that they are probably being snapped up for buy-and-hold storage by the wealthy.

Those who see governments banning ownership of bitcoin are ignoring the political power and influence of those who are buying enough bitcoin to matter.


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Check out both of my new books, Inequality and the Collapse of Privilege ($3.95 Kindle, $8.95 print) and Why Our Status Quo Failed and Is Beyond Reform ($3.95 Kindle, $8.95 print, $5.95 audiobook) For more, please visit the OTM essentials website.



Inequality is rising globally, and rising inequality is destabilizing. A status quo of increasing inequality self-destructs. To avoid this fate, we must answer this question: why is the gulf between the wealthy and everyone else widening so dramatically?

The answer boils down to one word: privilege.

What is privilege? There are many types of privilege, but they all share two characteristics: privilege delivers benefits, wealth and power that are unearned.

Privilege is destabilizing for many reasons: the dead weight of privilege reduces productivity, generates perverse incentives and fuels social injustice. Innovation and competition are threats to privileged monopolies and are therefore suppressed.

The only way to foster sustainable stability is to dismantle institutionalized privilege.

We have a moral imperative to eradicate privilege: privilege is immoral, as rising inequality is the only possible output of privilege. Privilege is exploitive, parasitic, predatory and destructive to the society and economy, and generates inequality by its very nature.

Stripped to its essence, privilege is nothing but institutionalized racketeering.

The only way to reverse rising inequality is to eradicate its source: privilege.

Inequality and the Collapse of Privilege ($3.95 Kindle ebook, $8.95 print edition)



Recent entries:

Why Governments Will Not Ban Bitcoin October 23, 2017

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The United States of Weinstein: Complicity, Greed and Corruption Is the Status Quo October 17, 2017

The Fading Scent of the American Dream October 16, 2017

The Endgame of Financialization: Stealth Nationalization October 13, 2017

Are You Better Off Than You Were 17 Years Ago? October 12, 2017

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Our Protected, Predatory Oligarchy: Dirty Secrets, Dirty Lies October 10, 2017

The Consent of the Conned October 9, 2017

Migration of the Tax Donkeys October 6, 2017

Be Careful What You Wish For: Inflation Is Much Higher Than Advertised October 5, 2017

What Few Expect: Inflation Will Surge, Destabilizing the Status Quo October 4, 2017

What If the Tax Donkeys Rebel? October 3, 2017

2009 - 2016: Was the Eight-Year Experiment in Maintaining the Status Quo a Success or a Failure? October 1, 2017


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Our status quo--the pyramid of wealth and power dominated by the few at the top--has failed and is beyond reform.

This failure is not rooted in superficial issues such as politics or governmental regulations; the failure is structural.

The very foundation of the status quo has rotted away, and brushing on another coat of reformist paint will not save our societal house from collapse.

Yet those who benefit from our status quo naturally deny it has failed, for the reason that it has yet to fail them personally—either pretending to not understand that all unsustainable systems eventually collapse, or hoping to postpone it.

Our status quo is not only failing to solve humanity’s six core problems--it has become the problem.

Since this failure is now inevitable, something is coming to replace it.

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Automation is upending the global order by eliminating human labor on an unprecedented scale--and the status quo has no solution to this wholesale loss of jobs.

What if we could hit the reset button on the way we create money, work, commerce and community? What if we could design a social economy rather than a merely financial one? These are not idle questions, for technology now enables us to hit that reset button and organize the creation of money, work, commerce and community in new ways.

If we could start from scratch, what would a new system look like? Clearly, we need a system that offers what the current system cannot: meaningful work for all.

This book is the practical blueprint of a new system that offers opportunities for meaningful work and ownership of the sources of prosperity not just to a few, but to everyone.

A radically beneficial world beckons—what are we waiting for?     Introduction     Chapter One (free PDF)



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